Traditional businesses can rest easier: NASDAQ’s recent violent nature is a symptom of the impending collapse of dozens of former online darlings. As it turns, out solid business plans, management-team depth, effective business models (however boring), customer service, competitive advantages, and (duh) profits really do matter.
The dot-com’s e-retail strategy — spending millions of dollars on “eyeballs,” trying to attract customers to their sites — appears to have failed. Those spend-with-abandon principles may have gotten them national exposure via overpriced Super Bowl spots, cute and creative print and TV campaigns, and their nearly ubiquitous banners on Internet sites. But those principles have also put them in the position of becoming the first of undoubtedly many casualties on the Internet business learning curve.
These online giants’ plight is a natural, predictable part of the development of a new business like the online retail and information sector. The industry’s short-term watchwords will be consolidation and attrition. Each major e-tail category will end up with only a few companies that dominate.
The likely winners? Analysts point to the same old-fashioned, brick-and-mortar retailers that the Internet business generation was going to make obsolete — at least if you believed last year’s hype. Wrong. Instead of becoming obsolete, those players are quickly evolving into the new market channel’s dominant players, leveraging their brand recognition, enormous customer bases and formidable resources.
Place Still Matters
There’s a major real estate lesson here: Despite all the media hype and Gen X chest thumping the truth is, bricks and mortar still matter.
Being an Internet company doesn’t simply mean doing all your business in a virtual world — as more and more large Net concerns are discovering. Several big-name online players, including Amazon.com, drugstore.com and eBay, are investing heavily in the back-end infrastructure that, until recently, they asserted they didn’t need. The lion’s share of that bricks-and-mortar investment is going into order fulfillment operations, and warehouses and distribution facilities. This year, Net-based businesses alone will utilize an estimated 100 million sq. ft. (90,000 sq. m.) of warehousing space. Point-and-click companies like computer manufacturers Gateway and Dell, are also increasingly expanding their bricks-and-mortar presence.
Traditional companies as well are moving more toward the middle, integrating the Net into operations and planning for its major future business role. Consider these brick-and-mortar giants:
- No. 3 U.S. retailer Kmart is partnering with Yahoo, and venture capital giant Softbank to create a new Kmart subsidiary, Bluelight.com, which will provide Kmart’s millions of customers with free Internet access and shopping services.
- No. 1 U.S. retailer Wal-Mart is teaming with America Online in an alliance to co-market a low-cost Internet service to Wal-Mart customers. Circuit City Stores likewise has a marketing deal with AOL. And AOL has previously sought offline customers in deals with Blockbuster and Barnes & Noble.
- Best Buy and Microsoft have agreed to promote each other’s goods and services, and Microsoft bought a $200 million stake in the electronics chain. Microsoft has a similar deal with Radio Shack.
Every Company a Net Company
Mutual needs are driving such companies to create online-offline relationships. Online services realize that continued growth demands expanding their customer bases to new and perhaps less tech-savvy audiences. Conversely, brick-and-mortar giants want powerful Net partners to help mount their own Internet agendas and hedge their bets against competitive e-commerce startups.
The most likely outcome? In a few years all the talk about Internet companies will disappear. Every company will be an Internet company.
But being an e-company doesn’t mean simply selling over the Internet. What it does mean is incorporating the Web into everyday functioning, using it, for example, as a mode for b2b transactions and for building and improving customer relationships.
All companies know that their future competitiveness depends on the success or failure of their efforts to capitalize on the Internet’s efficiencies. The winners, though, are discovering the perfect optimization: bricks and clicks.
